Investor Alert

Aug. 31, 2009, 11:09 p.m. EDT

France's Wendel Is Banking On A Market Rally

By Matthew Curtin

The financial crisis embarrassed some of Europe's richest private investors. The near €1 billion ($1.43 billion) first-half loss at French investment group Wendel (PAR:FR:MF) is a reminder that highly leveraged gambles by family companies weren't all German -- despite the headline-grabbing Porsches, Piechs, Schaefflers and Merckles.

Wendel borrowed nearly €5 billion to buy 21% of building materials supplier Saint-Gobain (PAR:FR:SGO) in 2007 with the stake as collateral. It was nearly fatal as markets collapsed. Even today, CEO Frederic Lemoine has a serious challenge in restoring the 305-year-old group's reputation. Much rides on the sustainability of the current stock-market rally.

Wendel's shares, less than half their value of a year ago and down 7% on Monday, still enjoy a relatively narrow 14% discount to net-asset value compared with other investment firms. More than 95% of that value is made up of its stakes in listed companies.

Mr. Lemoine has extended the maturities of the €7.9 billion in debt, reducing any imminent liquidity risk.

But that still leaves Wendel in the humbled position of a highly geared recovery play with around 60% of assets in construction-related sectors.

One option for Wendel is exercising a put option for nearly a third of its diluted 18% stake in Saint-Gobain.

Having paid an average of €66 a share compared with Saint-Gobain's current price of about €30, the move would let Wendel reduce debt and cut its hefty exposure to the company.

But it also would lock in the loss. For now, Mr. Lemoine seems to be hoping that the markets simply keep turning in Wendel's favor.

Write to Matthew Curtin at matthew.curtin@dowjones.com

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